Apple Has $40B in Cash and CEO Jobs Isn’t About to Share it with Shareholders

Apple is currently sitting on a vast pile of cash — an estimated $40B USD — equal to about one fifth of its market capitalization.  That’s a rarity in the business world to say the least; in fact just about no company in tech industry, other than perhaps Microsoft has that much cash sitting around.

In a recent annual meeting, Apple Chief Executive Officer Steven P. Jobs discussed Apple’s fiscal fatness and why he feels it’s a good thing.  Sporting his traditional  trademark blue jeans and black mock turtleneck top ensemble, the Cupertino head man says that Apple is unlikely to commit to dividends or stock buybacks that would surely please the holders of Apple stock, which currently is trading at over $200/share on an average daily volume of 25M shares traded daily.

Instead, the cash allows for big moves — like the iPad.  He states, “We’re a large enough business now, that in order to really move the needle, we’ve got to be thinking pretty bold, pretty large. And who knows what’s around the next corner.  When we think about big, bold things, we know that if we needed to acquire something, a piece of the puzzle, to make something big and bold a reality, we could write a check for it.”

Some might interpret his last sentence to refer to acquisitions, but Jobs primarily is referring to internal expenditures.  Apple’s current rosy financial situation came thanks to enormous risky investments in super-products like the iPod and iPhone that when they first debuted were unlike anything else seen on the market.

Apple also specializes in small acquisitions, typically to gain experience in a field it’s unfamiliar with.  Describes Broadpoint Amtech analyst Brian Marshall, “Their historical use of cash has worked obviously very well.  Doing small deals, buying private companies with 100 to 150 engineers and integrating them with the Cupertino establishment and then taking their technology and making it pervasive throughout the organization.”

The outlook for Apple is rather promising for the next year.  The company looks to grow and expand in the key Chinese market, opening 25 new stores there next year.  Some analysts also think that despite some public jokes and criticism about the company’s new iPad tablet, that the tablet-cum-e-book reader may sell between 2 million and 5 million units.  Next month will give the first glimpse of the public’s interest when the Wi-Fi version of the iPad debuts.  Some may wait until April, when the 3G version lands.

Despite its tremendous cash pile and popular products, Apple does face some key risks.  Its soaring popularity and brand image have come at the cost of increased scrutiny, and recent quality issues have soured Apple’s image for some.  Apple also faces difficulties with it’s tradition of intense secrecy, a tradition that reportedly leads it to maintain an army of secret agents that spy on its workforce.  The company’s secretive nature recently came under fire when a worker at one of Apple’s Chinese suppliers died under suspicious circumstances after losing an iPhone prototype; and a recent incident in which security guards at a parts supplier beat a foreign correspondent didn’t help things much either.

Probably the biggest threat it faces, though, is maintaining the momentum on its products.  When the iPhone and unibody MacBook Pro debuted they had hardware on par with their top of the line competitors and they enjoyed sleeker packaging — keys to justifying the devices’ price premium.  Now several phones beat the iPhone’s hardware in various areas (and they have Flash, something Apple feels threatened by and refuses to support).  Meanwhile, the MacBook Pro’s hardware, particularly its CPU and GPU selection, is looking increasingly stale.  That said, there will probably be a MacBook refresh coming very soon and another iPhone refresh this summer that will help remedy those shortcomings.